The New Southbound Policy in a New Context

The New Southbound Policy, launched in 2016 to enhance Taiwan’s contacts with countries in the surrounding region, has recently taken on added significance. The deterioration in U.S.-China economic relations has placed the spotlight on Southeast Asia and India as prime areas for future growth in trade and investment. Taiwan’s efforts to enhance relations with those countries cover a broad spectrum of activity, including cooperation in education, healthcare, agricultural development, and industrial innovation.

From the time President Tsai Ing-wen announced in her Inaugural Address in May 2016 that she planned to promote a “New Southbound Policy,” assessments of the program’s potential have been mixed.

Supporters have hailed the vision of diversifying markets and strengthening relations with neighboring countries in the Asia Pacific by sharing know-how and experience in areas where Taiwan excels. Skeptics scoffed at the idea as impractical, noting that former President Lee Teng-hui had initiated a “Go South” policy in the 1990s with minimal success, while China today is in an even stronger position to try to block Taiwan’s initiatives.

Government officials have cautioned that the New Southbound Policy must be viewed as a long-term effort that will reap benefits only gradually. So far, to be sure, the program hasn’t brought about any dramatic, breakthrough achievements in improving relations with the 18 target countries, which include the 10 member states of the Association of Southeast Asian Nations (ASEAN), six countries in South Asia, plus Australia and New Zealand. The most concrete accomplishment to date is undoubtedly the bilateral investment agreement signed with the Philippines in December 2017, a pact that hopefully will serve as a model for similar agreements with other ASEAN countries and perhaps India.

Source: Bureau of Foreign Trade

At the same time, recent changes taking place in the global and regional political and economic environment may warrant taking a fresh look at the role that the New Southbound Policy can play. The tariff war that the Trump administration launched last year against China and the U.S. government’s exasperation with the way that China deals with foreign investors are giving new prominence to Southeast Asian countries and India as the prime growth areas of the future.

“The U.S.-China trade war may have a silver lining for Taiwan,” Bonnie Glaser, an Asian specialist at Washington’s Center for Strategic and International Studies (CSIS), told Taiwan Business TOPICS. “Some Taiwanese companies on the mainland are shuttering factories and moving to South or Southeast Asia. This is a boon to Tsai’s New Southbound Policy which aims to strengthen ties with countries in those regions.”

Since trade follows investment, that migration is also likely to have an effect in reducing Taiwan’s current heavy dependence on cross-Strait commerce (in 2018, mainland China plus Hong Kong continued to account for 41% of Taiwan’s export trade and nearly 20% of its imports). As a result, it is possible that the hope President Tsai expressed in her Inaugural Address – that the New Southbound Policy will enable Taiwan to “bid farewell to our past overreliance on a single market” – may indeed become reality over the course of the next few years.

“People around the world are now paying more attention to Southeast Asia,” says Alan Hao Yang, director of the Center for Southeast Asian Studies at National Chengchi University. “It’s a rapidly growing market of around 650 million people, and the U.S.-China trade friction is only increasing its importance.”

The current fluid geopolitical context includes the increased attention the U.S. government has been paying to the Asia Pacific region in an effort to check China’s influence. After a setback when President Trump rushed to leave the Trans-Pacific Partnership shortly after taking office, that effort – which began with the Obama administration’s proclaimed “pivot to Asia” – has now reappeared in the U.S. government’s repackaged Indo-Pacific Strategy.

The change in the international environment is only one of the reasons why the New Southbound Policy should not be looked at through the prism of the Go South initiative of the Lee Teng-hui era. The earlier program was mainly devised to try to divert Taiwanese industrial investment to Southeast Asia, spurred by national security and economic security concerns over the huge number of Taiwanese manufacturers that were setting up in China.

Taiwanese enterprises were not swayed by the Lee government’s admonitions, given the lure of the welcoming investment conditions in China at the time. Today, however, labor costs, environmental regulations, and the overall investment climate in China are less attractive, not to mention the threat of being caught in the middle of a U.S.-China trade war.

Changes in approach

Another factor is that the Lee Teng-hui initiative was largely keyed toward working with the governments of Southeast Asia. Considering the absence of formal diplomatic relations with all of the countries involved, that was clearly a huge obstacle. Although the New Southbound Policy has not totally abandoned the idea of developing closer government-to-government cooperation, the Tsai administration recognizes the difficulties involved and places greater emphasis on people-to-people contacts.

This approach has been made easier by the emergence during the past few decades of a more developed civil society in many of the New Southbound Policy target countries. Many of the cooperative programs are now carried out in collaboration with domestic institutions – NGOs, think tanks, universities, hospitals, etc. – in the various societies.

Yet another change that has occurred is within Taiwan’s social fabric. “We probably now have more than a million Southeast Asian people living in Taiwan, counting both migrant workers and the large number of spouses from transnational marriages,” says Alan Yang. Consequently, Taiwan no longer views its position within the region almost exclusively in terms of its relations with China and Japan. Its increased cultural diversity has brought it closer to its other regional neighbors.

Taiwan has also come to greater appreciate the elements of “soft power” that it can mobilize to make up for its formal diplomatic isolation and mitigate the pressures that Beijing may bring to bear. “Obviously with high-level exchanges, we cannot make a public announcement or we have to tailor it so as not to make trouble for our partner,” says Minister without Portfolio John Deng, whose Office of Trade Negotiations takes overall responsibility for coordinating the New Southbound Policy.

Minister Without Portfolio John Deng says that substantive progress is being made despite the lack of diplomatic relations with the New Southbound countries.

“But these countries want their economies developed, they want their students to be better educated, they want their medical care to be improved, and they want their farmers to increase their income. For those goals, with or without diplomatic relations, we have a lot to offer. Yes, you need to tailor your program to face the political reality, but in substance you can still move forward.”

Politics may not even be the number-one challenge faced by the New Southbound Policy. Deng stresses the complication of becoming knowledgeable about conditions in 18 different countries. “Although we do have experience in those places, there are still many aspects that we aren’t so familiar with,” he says. “Each country is different in terms of government structure, laws and regulations. There are different languages, customs, and religions. We have to work harder to get to know more about each government’s operations and each society’s culture and special characteristics in order to work effectively.”

Due to that gap in understanding in Taiwan as well as political sensitivities in some of the target countries, some critics urge the Taiwan government to rely more heavily on the private sector in building connections with Southeast Asia. “ASEAN countries love business and love investment, but they’re scared to deal with the Taiwan government directly because the benefit from China is much bigger – there’s no comparison,” says Jackie Lo, chairman of the Taiwan-ASEAN Business Council. The three-year-old council represents over 40 corporate and banking members in Taiwan and Southeast Asia.

Lo says that operating the New Southbound Policy would be much easier if it were administered by an independent institution outside of government. “Even TAITRA [the semi-official Taiwan External Trade Development Council] is too political,” he maintains.

The annual Yushan Forum provides an opportunity for thought leaders from around the region to discuss salient issues of concern.

A further challenge is the sheer scope of the effort, which encompasses scores of different projects involving 23 ministries and departments in the Taiwan government. The budget devoted to the programs came to US$241 million in 2018. To provide more focus for the deployment of resources, the NSP is concentrating primarily on the major ASEAN economies as well as India.

And in August 2016 the administration pinpointed five flagship programs under the NSP: regional agricultural development, medical and public health cooperation and the development of industrial chains, industrial talent development, industrial innovation and cooperation, and the holding of an annual conference known as the Yushan Forum.

The other articles in this section look at these flagship programs in more depth.

Don Shapiro is Editor-in-Chief of Taiwan Business TOPICS and Senior Director of the AmCham Taipei. Before joining the AmCham staff in 2002, he was president of the Trade Winds publishing company and Taiwan correspondent for Time Inc.

Taiwan Business TOPICS

Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei, and covers current topic affecting business conditions in Taiwan, an Industry Focus section on a particular industrial sector, and other reports prepared by the magazine’s staff of experienced professional journalists.